If you bought the top of the 2017 – 2018 crypto market, you could be down 80% – 99.9% depending on what you bought. That is rough, but you have options.
First off, before I get started, I can’t/won’t offer financial advice. So instead, I’m going to offer some ideas of what options a person logically has if they bought the top or anywhere close to it. The idea here is to make people aware of options, and to help people not feel hopeless (as being down 90%+ feels pretty bad).
Here is a list of what I see as options:
- HODL and chill. Take what you have, stash it away, and hope that the arc of time is kind to you. If history repeats (see some history here) over any length of time you should see better prices than you see today at some point in the future.
- Cash out some, and use that to buy if we go down. Here you take some money off the table to use to buy later, and this avoids you needing to put new money into crypto and avoids you losing even more money if we go down. If we go up from here, then you still have skin in the game.
- Wait to take a loss until you can use it. If you are an investor, and you invest in any sort of capital assets like a vehicle you might sell, a secondary home, stocks, or even crypto in general… you can HODL your crypto, and then realize your capital loss down the road when you need it. This has a dual benefit of potentially resulting in crypto going up higher than it is now in the meantime.
- Take the loss today, and then use the carryover rule to bring down you ordinary taxable income in future years. Capital losses are not fun, but the carryover rule is a silver lining for smaller time investors who make mistakes (the $3k annual deduction limit is too small to really help bigger investors).
- Average down. If I bought 1 BTC at $20k, but also I bought 1 at $1k, my average price is $10k. That is still high, but it isn’t $20k high. If I buy 20 at $1k and 1 at $20k, my average price is just under $2k. That is a pretty respectable average price in a market where BTC trades at $1k. If I buy little amounts all the way down, but buy more as it gets lower, I get a result in between these two. Averaging is a viable option for a long term investor who isn’t focused on timing a market. With that said, a good rule of averaging is to 1. consider if there is a point at which you would sell no matter what and 2. to have plan for what happens if it goes to zero. See planning for the worst case. Also, be sure to think about position sizing and risk management.
- Wait until a bottom is formed, then brush your shoulders off and try again. Right now we are in a downtrend… but market cycles are a thing and there is a good chance that crypto isn’t literally dead. I mean, it wasn’t in the crashes of 2011 or 2014, and it probably won’t be again now. It is hard to know where the bottom will be though, so one option is to avoid trying to catch falling knives and wait until what looks like a clear bottom is formed.
- Trade. Most traders are not good traders… but like, some are. It is always an option to trade crypto-to-crypto or crypto-to-fiat in a bear market to increase your coins or dollars. In my experience switching to being a trader after taking heavy losses is not worth it (as you realize capital gains and risk what you have left)… but judgements aside, it is an option.
- Hedge. You can simply hedge your long position by going short. Sure, this would have been a great play at the top, but unless you know something I don’t, no one here has a time machine. Please be aware that shorting is risky, and shorting on margin with more than you can afford to lose is more toward gambling than investing.
In my opinion the further into a bear market we go, the less it makes sense to trade, take losses, or hedge… but of course, everyone has different goals and risk tolerances.
For me the fact that so many have turned bearish and that we are seeing such rapid declines is a sign that this is more the time to figure out a strategy for accumulating… but like, I’m me and not you.
The reality is walking away with $3.5k is better than $0, and while many of us believers in crypto don’t think $0 is on the table, no one can see the future.
The only point here is to say “you have options.”